KAYS korner

Jul 29, 2011

Beef´s export boom

Exports are becoming the lifeblood of the U.S. beef industry.

Although we export only 12-14 percent of our production, strong global demand has raised beef prices and has partially offset spluttering demand at home. Exports have significantly raised cattle values. The export boom is adding more than $200 per head to the value of fed cattle. That’s nearly $50 per head more than the record annual average set in 2010.

Exports so far this year are up sharply in volume and up even more in value. A primary reason is the weak U.S. dollar relative to other currencies. This makes U.S. exports increasingly competitive in many markets, notably in Canada and Asia.

A fascinating development is the emergence of the Middle East as a rapidly growing market for primal cuts. This is partly the result of work by the U.S. Meat Export Federation (USMEF), which has focused on introducing several beef cuts not traditionally used in the region. Meanwhile, exports to South Korea continue to see remarkable growth. But Mexico and Canada remain the U.S.’ top two exports markets in terms of volume and value.

Beef and beef variety meat exports year-to-date through May totaled 509,489 metrictons (mt) valued at $2.09 billion, says USMEF. This surpasses last year’s pace by 28 percent in volume and 44 percent in value. Exports to South Korea to the end of May more than doubled the 2010 pace in terms of both volume (76,209 mt) and value ($330.6M). In terms of value, Japan at $327.5M pulled nearly even with Korea for the No. 3 position behind Mexico and Canada. Export value to Japan is running 69 percent ahead of last year’s pace while export volume at 59,672 mt is 63 percent higher. Significantly, the U.S. has increased its market share in Japan this year at the expense of Australia.

Exports to the Middle East region so far this year have increased 44 percent in volume (64,712 mt) and 60 percent in value ($125.8M).

Strong growth in Egypt has fueled the increases—it is the number one market for U.S. livers. But the region has seen diversification into primal cuts, says Dan Halstrom, USMEF’s senior vice president of global marketing.

High-end restaurants in the region are booming and they are using more U.S. cuts such as chucks and top sirloins. More than 90 percent of U.S. exports are going to the foodservice sector. The retail sector is virtually untapped, so the potential for growth is enormous, he says.

It would be nice to say that U.S. ethanol policy has helped the beef industry but the op posite is true. USDA forecasts that for the first time, more of the U.S. corn crop will go to ethanol production than to livestock feed. A startling 40 percent of this year’s crop will go to ethanol, compared to just 6 percent 11 years ago.

Even more incredulous is the way in which the ethanol industry has grown. Over the years, the industry has received more than $30 billion in federal aid. Still in existence but possibly soon to disappear are a 45-cent-pergallon blenders’ subsidy and a 54-cent-per-gallon tax on imports.

As indefensible as this support is, that’s been nothing compared to the two energy bills passed under the Bush administration that mandated that at least 10 percent of all gasoline include biofuels. As ethanol is the only commercially-produced such fuel, this gave ethanol a guaranteed market, as well as getting $6 billion annually of free federal handouts. Ethanol used only 20 percent of the corn crop until the federal mandates took effect. Ethanol’s corn use has more than trebled the price of corn in the past six years. Cash corn prices last week were more than double what they were a year ago. Futures prices are close to $7 per bushel and there’s little likelihood they will decline.

Ethanol supporters until this year did a brilliant job in convincing politicians that their industry needed to keep being supported and that ethanol’s corn use had little to do with rising food prices. Washington has finally wised up to the first claim and bipartisan legislation looks like eliminating the blenders’ credit (possibly on July 31).

People are still questioning the corn use-food price connection. But the debate misses the fact that higher corn prices are one of the main reasons why U.S. livestock producers have not expanded their herds the past two years. Other factors have caused cattle producers to keep reducing their herds, notably severe to extreme drought this year from Texas to Florida. But high corn prices are creating considerable uncertainty about future profits. They’re certainly impacting cattle feeders’ ability to make money, as feeder cattle prices have remained high because of declining cattle numbers.

The shrinking U.S. cattle herd, static hog numbers, and more meat exports all mean less beef and pork on the domestic market on a per capita basis. Retail meat and poultry prices are currently up 8.5 percent on this time last year and ethanol policies have been at least partly responsible. — Steve Kay (Steve Kay is Editor/Publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707/765- 1725. Kay’s Korner appears exclusively in WLJ.)